Bell Sports Corporation Business Information, Profile, and History

Company Perspectives:

Since its beginnings in 1954, Bell has maintained its worldwide leadership position in helmets. We have earned our reputation by insisting on quality in design, workmanship, materials, safety, and performance.

History of Bell Sports Corporation

The Bell Sports Corporation is the leading manufacturer of bicycle helmets in the United States and one of the top producers of bicycle accessories in North America. The company, which pioneered the first hard shell bicycle helmet in the mid-1970s, is widely recognized for its long tradition of product innovation and safety. It sells a wide range of bicycle helmets for infants, youths, and adults under three brand names: Bell, Bell Pro, and Giro. It also designs, manufactures, and markets a variety of bicycle accessories, such as bike carriers, locks, headlights, pumps, gloves, and racks, under the brand names Bell, Blackburn, VistaLite, and Spoke-Hedz. The company also markets in-line skating, snowboarding, snow skiing, and water sports helmets. Its products are marketed and sold throughout North America, Europe, Australia, and Asia by specialty retailers as well as mass merchandisers such as Kmart and Wal-Mart. In fact, Wal-Mart sales accounted for more than 30 percent of Bell's total sales in 2000.

Early History

Although Bell Sports generates nearly all of its revenue from the bicycle helmet and accessories industry, its origins can be traced to the colorful helmets that have become a familiar part of the auto racing circuit and to the Los Angeles suburb of Bell, a hotbed of high performance racing for more than 60 years. In 1953, three decades before bicycle helmets entered the mainstream, Roy Richter, a race car designer and driver whose Bell Auto Parts was at the forefront of the latest in high performance technology, began supplying his customers with a new type of fiberglass helmet. The innovative helmets were manufactured using a high-quality, hand-laminated process. They quickly gained favor with the racing community and were worn by such Indianapolis 500 stars as Bill Vukovich.

In 1957, though, an article appeared in Sports Cars Illustrated--the forerunner to Car and Driver--that would force Richter to redesign his product. According to the research of a Sacramento physician who had set up a small foundation in the name of his friend, Pete Snell, the victim of a fatal auto racing accident, most contemporary helmets, including the Bell "500" model, were useless; some, in fact, increased the trauma to the head during a crash by concentrating force on a single point of the skull. Richter immediately stopped production and, after acquiring the rights to a liner used by a rival company that had fared better in the tests, designed a new helmet, the Bell 500 TX, which became the first helmet to receive Snell Foundation approval. The innovative helmet would serve as the prototype for Bell's state-of-the-art helmets for years to come and would set a company standard for product safety.

At that time, helmets were made primarily of soft rubber. During the late 1950s, however, two professors at the University of Southern California invented the process of using polystyrene, or foam, and Bell again had the forethought to purchase the rights to the more protective substance. The company then established a laboratory--the first of its kind in the United States--to conduct tests on the promising material and build its own foam machines at a cost of just $7,000 a piece. During the 1960s, the company began supplying helmets to the U.S. Ski Team. Bell also found its niche manufacturing motorcycle helmets and evolved into the leader in the industry.

Expansion in the 1970s

The demand for motorcycles exploded in the 1970s, and as many as 55 domestic companies began manufacturing helmets. But success for the vast majority of helmet producers was short-lived. As damages awarded in product liability cases skyrocketed, it became increasingly difficult for companies to obtain insurance. Distributors and dealers were hesitant to carry a product not covered by insurance. Although product liability concerns forced all but around ten companies to stop manufacturing motorcycle helmets by the mid-1980s, Bell solidified its position in the market by establishing an unparalleled reputation for product safety. Although Bell, like its competitors, faced a number of lawsuits, it was forced to pay only one judgment, for $25,000 in 1977. That record of success, a benefit of having its own testing facilities, would continue well into the 1990s, as Bell won 27 straight cases over a 15-year period.

Although Bell focused its attention on motorcycle helmets during the remainder of the decade, it had enough vision to develop other aspects of its business. In 1975, the company quietly introduced a product that would later become its major source of revenue: the Bell Biker, the first hard shell bicycle helmet introduced onto the market. Prior to that introduction, cyclists wore leather helmets, if they wore any protection at all. At this time, though, efforts to market the high-end product were modest; Bell, the nation's largest manufacturer of motorcycle helmets through the early 1980s, attempted to take advantage of the continuing surge in the motorcycle industry.

Despite its preeminent position in this niche market, the $20 million company struggled to make a steady profit. In 1983, Phillip Matthews, a former executive at Wilson Sporting Goods, and two partners acquired Bell Sports. They enlisted the management services of Terry Lee, a Wilson executive in charge of sales and distribution, to help run the company. That same year, though, the motorcycle boom came to a halt and with it the demand for helmets. Matthews's partners wanted out of the deal, and Bell was forced to go into debt to buy back their shares. With nearly every penny of cash flow now going toward debt service, the company could no longer afford to produce new designs, the hallmark of the Bell reputation. What is more, quality slipped: some helmets even left the factory with crooked noses. A better financed Japanese competitor, Shoei, with its superior aerodynamic designs and venting technology at similar prices, began swallowing up some of Bell's U.S. market share.

The New Focus of the 1980s

While the company's motorcycle helmet business was declining, though, bicycle riding suddenly grew in popularity, heightening the demand for helmets and creating an opportunity for the company to return to profitability. Although bicycle helmets comprised only 10 percent of revenues in 1984, sales started growing at 50 percent per year, thanks in part to the introduction of an infant bicycle helmet, the Li'l Bell Shell. Two years later, the company, now producing about 500,000 helmets a year, broadened its product line with the acquisition of its first bicycle accessory company and began manufacturing such items as bicycle pumps, child seats, red flashing safety lights, and car racks. In 1988, Bell began marketing its products in Europe. That same year the company generated $24 million in revenues, while recording a modest profit, despite the continuing decline of its motorcycle helmet business.

Just before the close of the decade, the company underwent a major restructuring to prepare itself for the changing focus of its business. On November 16, 1989, a group of investors and lenders, including the former management and owners, took over ownership of the company through a leveraged buyout. The Bell Sports Holding Company, as it then became known, consisted of four related businesses engaged in the manufacture and marketing of motorcycle helmets, bicycle helmets, bicycle accessories, and auto racing products.

Changes in the Early 1990s

In 1991, Bell finally ended its 37-year involvement in the motorcycle helmet business, selling its manufacturing and licensing rights to an Italian competitor called Bieffe for an estimated $15 million. "We had to laser-focus on spending the scarce resources we had in the most effective way," Lee told Forbes magazine's Zina Moukheiber. Although the motorcycle market did rebound, Lee's strategy proved to be a success. Using the money generated from the sale to reduce debt, the company was now in better position to expand its most promising product lines. Bell, for instance, was now able to market its Li'l Bell Shell aggressively through advertisements in leading parents' magazines. By 1992, the company, with the help of strong expansion in its European markets, was generating $5 million in net profit on sales of $64.5 million, up 36 percent from the previous year.

In an attempt to reduce debt further and generate capital for continued expansion, Lee sold 52 percent of the company in an initial public offering made in April 1992. At that time, the company changed its name to Bell Sports Corporation and was divided into four operating divisions: Bell, a Norwalk, California distributor of the company's premium brand of helmets; Rhode Gear, a Providence, Rhode Island distributor of entry- and mid-level helmets and non-helmet bicycle accessories; BSI, which markets helmets to discount stores and mass merchants such as Wal-Mart, Toys 'R' Us, and K-mart; and, finally, Bell Sports Manufacturing, a Rantoul, Illinois manufacturing and testing facility.

The same year that Bell went public it benefited from legislation that promised to create a boon in its principal market: New Jersey became the first state to require children under the age of 14 to wear bicycle helmets. New York, Connecticut, Georgia, Tennessee, Virginia, and Oregon quickly followed suit. A number of county and municipal governments across the country passed mandatory helmet laws as well. With California and other large states considering similar legislation, the small growth industry appeared ready to explode into a big business.

Bell controlled 50 percent of the bicycle helmet market at the time and, by virtue of its size, was the lowest-cost producer in the industry. The company was in a solid position to take advantage, having established relationships with a number of mass merchants, such as Wal-Mart and Kmart, as well as independent bike dealers. Moreover, Bell was the only vertically integrated manufacturer in the industry, producing everything from the polystyrene inner lining to the glossy paint on the exterior of its helmets, enabling the company to minimize costs and to monitor product quality. As the only public company in the industry, Bell excited a number of investors on Wall Street; by late 1993 its stock had soared to $49 per share, an increase of more than 225 percent from its original offering of $15. Meanwhile, sales soared to a record $82.6 million and profits moved up to $7 million. Fiscal year 1994 proved to be another banner year as revenue jumped to $116 million and profits jumped to $10.4 million.

The meteoric rise of the company's stock, though, proved to be short-lived. Bell's success quickly attracted a host of competitors. There were few obstacles to entering the market, as bicycle helmets were not difficult to fabricate and plastic and foam were the only materials needed. In fact, the industry as a whole suffered from a slowdown in the passage of mandatory helmet legislation. Expectations for the market were exceedingly high, resulting in an inordinate growth in the market. For Bell, this represented an unprecedented drop in performance. Not only did stock prices fall below the $20 range, but revenue and profits declined as well. For the first time in four years, the company reported a loss as top competitors such as American Recreation, Troxel Cycling, and Giro Sport Designs encroached on Bell's marketing territory. And, for the first time in Bell Sports history, sales declined.

Aggressive Marketing and Expansion in the Mid-1990s

In an attempt to stay ahead of the competition--which quickly grew to about 50 companies--and regain the confidence of investors, Bell made several strategic moves. First, the company broadened its distribution network, making its BSI helmet, which already was being sold by Wal-Mart and K-mart, available to any store that wanted to carry the line. Whereas supplying discount stores with Bell products may have offended some of the company's regular bike shop customers, it was crucial for the company to further expand its control of the mass merchant market, which in 1994 was responsible for approximately 80 percent of all bicycle helmet sales, compared with only 20 percent three years earlier.

To support this full-scale movement into the mass market, Bell launched its most aggressive advertising campaign to date. The program included a national advertising and promotional campaign on television stations such as ESPN and MTV, as well as on other local and national spots, in magazines written for bicycle and sports/fitness enthusiasts, and in a few general publications. Bell's extensive advertising program was designed not only to promote the quality of the Bell brand name but to educate consumers on the importance of wearing bicycle helmets as well. Another segment of the company's marketing strategy was evident in its continued support of amateur and professional athletics. In 1994, for instance, the company sponsored more than 1,000 cyclists, triathletes, Indianapolis 500 racers, in-line skaters, and wheelchair racers, making the Bell name visible to millions of viewers, spectators, and potential purchasers. At the same time, the company strengthened its commitment to the National SAFE KIDS Campaign, which works to protect children from death and injury by promoting helmet use.

While trying to make the Bell name more visible in the United States, the company also attempted to strengthen its position in the global marketplace. The company began marketing its helmets in Europe in the late 1980s, opening its first European sales office, in Paris, in 1990 and its first European manufacturing facility, in southern France, later that same year. During the early 1990s, Bell also began developing a sales and distribution network in the Asia-Pacific region. The large amount of capital needed to initiate these endeavors, however, combined with the immaturity of these markets, prevented the international divisions of the company from making a substantial contribution to overall corporate profitability. In Canada, though, where mandatory helmet legislation passed in two Canadian provinces in 1995 (covering an estimated 13.4 million adults and children), Bell became the market leader.

In addition to more aggressive marketing and geographical expansion, Bell attempted to improve its performance through acquisitions. Chief among these purchases was the company's 1995 purchase of American Recreation Company Holdings, Inc., the nation's second largest helmet manufacturer at the time, with a 22 percent market share. A distributor of bicycles and bicycle accessories through 2,500 retailers, American Recreation also marketed Mongoose and Pro Class mountain and road bikes for adults and children through 750 outlets at the time of the deal. The $75 million purchase represented Bell's largest acquisition to date and promised to strengthen its leadership position in North America. Moreover, the combination of complementary products shared by the two companies represented the potential for significant economies of scale and lower production costs.

The Late 1990s and Beyond

As Bell Sports entered the latter half of the decade, its corporate headquarters were moved to Scottsdale, Arizona. Just one year after the American Recreation purchase, Bell made another strategic move and bought former competitor Giro Sport Designs. Bell appeared to be well positioned to make giant strides in the industry after these purchases. At the same time, the actions of state and local legislators also promised to play a key role in the demand for bicycle helmets. In fact, four additional U.S. states and two Canadian provinces passed mandatory helmet legislation in 1996, representing a potential market of more than 22 million adults and children.

In 1997, however, demand related to helmet legislation began to level off and Bell once again faced increased competition. To maintain its hold over the market, Bell was forced to implement price cuts. Although the effort proved to secure its market share, Bell reported a $18.1 million loss for fiscal 1997. During that year, the company divested its Mongoose and SportRack--a Canadian firm it had purchased in 1995--businesses and closed its plant in Memphis, Tennessee.

During 1997, Bell sought out the services of investment bank Montgomery Securities to find buyers for the company in the hope of stabilizing its financial situation. Sure enough, investment management firms Charlesbank Capital Partners LLC and Brentwood Associates Buyout Fund II LP stepped forward to purchase the company in August 1998 for $200 million. Its new owners eyed Bell as a lucrative investment opportunity and set plans in motion to expand the firm's global presence as well as to beef up its existing product line by expanding into helmets and accessories for extreme sports like snowboarding. That year, Bell executive Mary George was named CEO after Lee announced his retirement.

Under new ownership, Bell made several key changes to its business operations. It sold its auto racing helmet business and instead began licensing the Bell brand name for auto racing helmets and automotive accessories. The firm also shuttered its manufacturing plants in Santa Cruz, California, Canada, and Ireland, and sold its facility in France. The move consolidated all manufacturing operations to its Rantoul, Illinois facility and was done in an attempt to control operating costs.

Bell entered the new millennium with additional changes on the horizon. In August 2000, Chartwell Investments purchased a majority interest in the firm from both Brentwood and Charlesbank in a management-led recapitalization of Bell. George, who was named chairman after the deal, commented on the purchase in a 2000 company press release stating, "We have enjoyed a rewarding and productive partnership with Brentwood and Charlesbank. During the two years since Brentwood and Charlesbank took the company private, Bell has substantially improved its market position and financial performance." George also added, "With our new partners at Chartwell, Bell Sports continues to be one of the strongest capitalized companies in the industry."

During that year, Bell also moved its corporate headquarters from San Jose, California, to Irving, Texas. The firm's retail operations--those serving mass merchandisers--moved to the new Texas facility while business operations related to specialty retail markets including independent bike shops and Internet sales moved to a company-owned facility in Santa Cruz, California. Although Bell was positioned for growth--it controlled nearly 60 percent of the bicycle helmet market--the industry as a whole experienced a downturn during the first years of the new decade. Whereas sales increased during 2000, the firm expected a decline in fiscal 2001. As such, Bell closed its Canadian distribution facility, discontinued its Rhode Gear and Hydrapak product lines, and announced job cuts. Despite the slowdown in the American economy, Bell management was determined to remain a leader in the cycling and sport helmet industry and eyed these restructuring efforts as key to staying ahead of competition.

Principal Subsidiaries: Bell Sports Inc.; Blackburn Designs Inc.; VistaLite Inc.; Giro Sport Designs International Inc.

Principal Competitors: Trek Bicycle Corp.; Variflex Inc.

Chronology

• Key Dates:
• 1953: Roy Richter begins selling fiberglass helmets at his auto parts store and establishes Bell Helmets.
• 1957: Richter begins to redesign his product due to safety concerns; Bell establishes the first helmet test laboratory in the United States.
• 1960: Bell begins supplying helmets to the U.S. Ski Team.
• 1975: The Bell Biker bicycle helmet is introduced.
• 1983: Phillip Matthews acquires Bell Sports and partner Terry Lee is named CEO.
• 1984: The firm launches infant bicycle helmet Li'l Bell Shell; bicycle helmet sales begin growing by 50 percent per year.
• 1988: Bell begins marketing its products in Europe.
• 1989: A group of investors and Bell management take over ownership of the firm through a leveraged buyout.
• 1991: The company sells its motorcycle helmet business.
• 1992: Bell goes public and changes its name to Bell Sports Corporation.
• 1994: Revenue climbs to $116 million.
• 1995: The firm acquires competitor American Recreation Company Holdings, Inc.
• 1997: Due to weakening demand, the company posts a $18.1 million loss.
• 1998: Investment firms purchase Bell Sports and take it private; Mary George is named CEO.
• 1999: Bell restructures and consolidates all manufacturing operations to its Illinois plant.
• 2000: A management-led recapitalization is finalized; corporate headquarters move from San Jose, California to Irving, Texas.